The Special Session
on agriculture, mainly involving negotiations on maket access issues (the
tariff reduction formula and special products and special safeguard mechanism)
took place on 30 May to 3 June at the WTO.

Below is a report with
a summary of some of the main developments during the week. This is the
third report on the agriculture week.

This report was published
in the South North Development Monitor (SUNS) of 6 June 2005.

The Special Session of the
WTO Committee on Agriculture, at a week-long meeting (30 May to 3 June),
discussed market access issues under the agriculture framework of the
'July package' including the tariff reduction formula, sensitive products,
special products, and various types of safeguards.

The meetings were conducted
in informal mode under the socalled 'Room D' process (held in a smaller
room at the WTO but open to all interested members). Members also briefly
took up the domestic support issue of Green Box subsidies, a subject that
was left over from the April meetings of the Special Session.

A formal meeting of the Special
Session of the Committee on Agriculture was held on 3 June.

At the end of the formal session,
the Chair of the Special Session of the Committee on Agriculture, Tim
Groser, who is continuing to chair the talks until the end of July, said
that he remained "deadly serious" about producing a "first
approximation" by the end of July even though a number of difficulties
remain.

Groser said the "first
approximation" that he intends to produce at the end of July will
not be full "modalities", but a further step towards it. He
described it as the August 2004 framework plus what he would identify
as further convergence on all three pillars (market access, domestic support
and export subsidies). He said there would be other issues that members
have raised (he did not mention any) that would have to wait. This would
not mean that these issues are ignored - simply that there is no convergence.

Acknowledging the large task
ahead, Groser reminded delegations that in early June 2004 many were sceptical
about members' ability to agree on the framework, and yet the framework
was agreed. "It's amazing what can be done with people of good will,"
he said.

He noted that some developed
and developing country members had privately expressed their concern that
some issues seemed to be going backwards because of some "very strong
proposals" from some developing countries, a pessimism which he said,
he did not share. He however did not mention which proposals were causing
concern to some countries.

But Groser said that these
proposals are a voice of the developing world that has to be heard. He
urged members not to be too concerned about the difficulty. "Negotiations
are about adjusting expectations," and the result of a negotiation
has never been the same as a proposal submitted at the beginning of the
process, he added. Some people believe that a good negotiator is a tough
negotiator, he said. "I've never seen a tough negotiator who is any
use at all because all they can say is 'no'." Therefore, members
should listen to each other, and not just at the technical level, he said.

At the informal meetings, members
held their first detailed discussions on the tariff reduction formula.
The discussions were made possible when an agreement was reached earlier
in May on the methodology for the conversion of non-ad valorem duties
to ad valorem equivalents. (See SUNS #5798.)

During these discussions, differences
emerged among members with respect to the kind of approach to be adopted
for making tariff reductions, with some countries favouring the Swiss
non-linear formula while others supported the Uruguay Round liner-cut
approach.

The Uruguay Round approach
involves average percentage cuts in tariffs with minimum percentage cuts
in each tier, while the Swiss formula is a non-linear formula where a
single coefficient determines both the size of the tariff reduction and
the maximum possible final tariff - a coefficient of 25 would mean a maximum
final tariff of 25%.

Groser, in responding to the
diverging comments from members on the two approaches, said: "Don't
lock yourselves into strong in-principle statements." He welcomed
efforts by some delegations such as Brazil, China and Canada to look at
possible and realistic alternatives.

Groser urged members to keep
an open mind on the best way to resolve the difference and cautioned against
being fixated on certain concepts or labels. "We will never have
a Uruguay Round approach," he said, "because we've decided on
a tiered approach." (The Uruguay Round approach only had one tier.)
The Chair also told members that he will not produce a formula at the
end of July, "because you'll reject it."

All the key countries with
non-ad valorem duties have submitted their calculations of ad valorem
equivalents, except for sugar, while work continued on verification of
the calculations made, and on a suitable world price for sugar.

On the discussions on the type
of approach to be used in the tariff reduction formula, countries in favour
of the Uruguay Round approach included the G-10 (Switzerland speaking),
the EU, the ACP group (Mauritius speaking), India and Indonesia (both
G-20 members). These countries regarded the Swiss formula as "unacceptable"
and they also opposed caps (setting a maximum tariff rate for any product),
including via the Swiss formula (the coefficient of the Swiss formula
is also the tariff cap). According to trade officials, several argued
that over 70 WTO members signed a document in 2003 supporting the Uruguay
Round approach.

The US however said that it
was in favour of the Swiss formula. Others who had previously advocated
the Swiss formula (some members of the Cairns Group and G-20, including
some Latin American countries and Malaysia) said that they were willing
to accept an alternative method that harmonizes tariffs, the trade officials
said.

These countries and the US
rejected the Uruguay Round approach arguing that it had been shown to
fail to produce genuine improvements in market access in all products
(a requirement of the July framework). Argentina, supported by several
others, also said that the framework's inclusion of "sensitive products"
moves the flexibility of the Uruguay Round to more specifically listed
products.

A handful of countries such
as Canada proposed an alternative harmonizing-type of formula. Instead
of the Swiss formula, Canada proposed an approach where each tariff rate
would be broken into components corresponding to the tiers, and the reduction
in each tier would apply to the corresponding component. Members did not
react immediately to this, preferring rather to study it.

China said members needed to
consider a way to find a middle ground. As an example, a compromise between
the two poles could be to have some products in each tier cut by a Swiss
formula and some cut by the Uruguay Round approach, China said.

Brazil supported China's search
for a middle ground between the Uruguay Round approach and the Swiss formula.
It said that this part of the negotiation is a balancing act that is "on
a knife edge". The objective, Brazil said, is to try to ensure genuine
improvements in market access, and at the same time to avoid pushing so
hard that countries that are defensive on the import side force a large
number of products to "migrate" into the "sensitive products"
category.

Costa Rica (for El Salvador,
Guatemala, Honduras, Panama, Peru) said tropical products and crops grown
as substitutes for narcotics should be taken out of the formula and be
given maximum liberalization.

When discussions focussed on
the number of tiers or bands and the threshold in the tariff reduction
formula, many countries spoke of three or four tiers, in some cases with
a possible additional tier for developing countries, according to trade
officials. Some countries argued that more bands might be needed to ensure
"harmonization" (making steeper cuts on higher tariffs). Brazil
described this as a "chicken and egg" question that should be
handled carefully to avoid going round in circles: the number of tiers
could be related to the formulae that go into each tier.

The G-10 (Switzerland speaking)
called for no more than three tiers and stressed that the tiers and thresholds
would have to take account of countries' different tariff structures.
The G-10 argued that the burden of adjusting because of tariff cuts should
be shared among all WTO members and should not fall disproportionately
on those with higher tariffs. Israel (a G-10 member) argued that a high
tariff does not necessarily mean no market access. It said that it imports
about half its garlic consumption despite a bound and applied tariff of
300%. In different circumstances, a tariff of only 15% could be enough
to block trade, Israel added.

Kenya, supported by some developing
countries, said that a number of developing countries have a single bound
rate for all agricultural products because in the Uruguay Round they chose
a "special and differential treatment" (SDT) option that allowed
them to bind tariffs at a single ceiling instead of tariffying (converting
non-tariff barriers into tariff equivalents). Countries with these ceiling
tariffs would have all products in a single tier, and probably a high
one, which would normally require a steeper cut. That would amount to
a penalty for having used SDT in the Uruguay Round, Kenya said.

Countries also differed in
their interpretation of a "single approach"(a phrase used in
para 28 of Annex A of the July framework). Some (including the G-10 and
Peru) said this meant the tiers (and the type of formula used in each
tier) should be the same for developed and developing countries (the difference
being in the coefficients in the formulas). Others said the phrase should
be interpreted more broadly.

Canada and the G-10 said the
thresholds between the bands should be determined as mechanically as possible,
for example, by listing all tariffs (for the entire membership or for
key countries) and splitting these appropriately without looking too closely
at the products concerned. Israel suggested as an option doing that for
each member (meaning the tiers would vary from country to country). China
said that would be far too complicated. The US said it had looked at the
three tiers proposed by the March 2003 draft modalities (the "Harbinson
text") and concluded that the middle tier was too broad and the top
threshold should be lowered in order to produce a result that is sufficiently
harmonizing.

Members also held detailed
discussions on sensitive products (available to all members and allowing
some exceptions from what is generally agreed for improving market access)
and special products (available to developing countries, allowing exemptions
for food and livelihood security and rural development).

With respect to sensitive products,
the July framework says that these products must not undermine the objectives
of tariff reductions, which includes "substantial improvements in
market access ... for all products" and "substantial trade expansion".

The G-10 and the EU said that
sensitive products are to be negotiated in parallel with the tariff reduction
forumula, and not to be treated as an exception. The G-10 wanted the number
to be negotiated by country, and then for each country to be free to select
the products. The EU said that the negotiated number could depend on the
formula. These countries propose a standard combination of tariff reductions
(which would be less than the reduction from the formula) and tariff quota
expansion, allowing some flexibility and trade off between the two.

They also oppose restricting
sensitive products to those that already have tariff quotas and argue
for the possibility of creating new tariff quotas. They want to see quotas
expanded in proportion to the current quotas, not in relation to domestic
consumption. According to trade officials, India while sharing some of
these views, rejected the idea of restricting sensitive products only
to those that currently have tariff quotas. The G-10 included in its proposed
trade-off, increased market access opportunities as a result of better
tariff quota administration and cuts in in-quota tariffs.

On the other hand, the Cairns
Group, several G-20 members and the US said that sensitive products are
exceptions; that there could be a trade off between the deviation from
the tariff formula and the number of sensitive products; and that there
should be a trade off between the deviation from the formula and tariff
quota expansion.

They said that genuine improvements
in trade are needed, and argued in favour of expanding quotas by a percentage
of domestic consumption They also said that products that currently do
not have tariff quotas cannot be designated as sensitive. Some added that
a country's export products cannot also be its sensitive products, that
tropical products and products enjoying domestic supports cannot be sensitive
products. Several argued that improved tariff quota administration cannot
be part of the market access trade-off since this is already an obligation.

The ACP Group (Mauritius speaking,
supported by Kenya) argued that sensitive products are critical to preserve
the interests of countries enjoying long-standing preferences, and to
conform with the "development" agenda of the Doha Round.

Debate at previous meetings
of the Special Session on the question of preferences between the ACP
and some Latin American countries resurfaced in the discussions, according
to trade officials. Costa Rica, supported by several others, said the
"development round" should not be defined to serve the development
of some developing countries and no one else. The guiding principles of
the Doha mandate must prevail, Costa Rica added, namely, opening markets
in order to serve development. The problem of preference erosion will
be tackled, but not at the expense of other developing countries, particularly
in tropical products, Costa Rica said.

With respect to special products,
the July framework (para 41) envisages criteria for selecting these products
and their treatment to emerge from negotiations.

The G-33 (Kenya speaking) outlined
some key principles in its paper. It said having a single set of criteria
would not be possible because of the differences in situations among developing
countries. Therefore, when countries designate products as "special
products", they could broadly take into account a list of issues
such as the importance of a product for subsistence or livelihood in a
region or country, its significance in consumption or for import substitution,
its contribution to national income or its wider developmental role, the
G-33 said. As for treatment, the G-33 proposed that special products would
not require tariff cuts and tariff quota expansion, and would be eligible
for the new special safeguard mechanism. Some countries such as El Salvador
and Guatemala supported the G-33.

According to trade officials,
several members within the group expressed some differing views. For example,
China (supported by Nicaragua and Cuba) proposed limiting the number of
special products to a percentage of products ("tariff lines").
India and Mauritius opposed any set limits, although India said it was
not planning to designate unlimited numbers of products. Peru said that
tropical products should not be eligible. Barbados recognized that exporting
countries also have an interest and that their concerns will have to be
addressed.

Other countries such as Malaysia,
Thailand, Chile and Colombia, said that exports, including to other developing
countries, are also an important part of achieving developmental objectives.
Malaysia supported China on limiting the numbers and with Peru on preventing
tropical products from being eligible. Thailand said poor, subsistence
farmers also produce for export, including exports to other developing
countries, and the range of products they can produce is limited. Therefore,
these farmers' interests in South-South trade also need to be taken into
account.

The US, the EU, Australia and
New Zealand said they recognize the need to deal with the vulnerability
of poor farmers through special products. The US said the best way to
deal with these "compelling and important concerns" is to recognize
the problem and isolate it so that the bigger picture of liberalization
is not watered down. For the criteria, the US proposed looking at a similar
list to the one suggested by the G-33 but including such questions as
whether the country is a net exporter or importer of a product. However,
to meet the overall objective of improved market access in all products,
the US said that it opposed total exemption from tariff reductions or
quota expansion.

In summing up, Groser said
that members need to see the G-33 paper, adding that he will hold smaller
group consultations in order to work on his July text.

On the special safeguard mechanism,
the G-33 introduced its views (Turkey speaking) including: this special
safeguard should be open to all developing countries and for all products
covered by the Agriculture Agreement; it should be applied to imports
from all sources (non-discrimination); it should be triggered either by
import surges or price falls; it should take the form of additional tariff
and, in some cases if that fails, by quantitative restrictions; it would
have a one-year renewable period; and it would have to be notified.

With respect to the Green Box,
a number of detailed amendments to Annex 2 of the Agriculture Agreement
were discussed.

The G-20 (Brazil speaking)
introduced a new paper with a number of proposals dealing with that question
as well as modifications designed to make the Green Box easier for developing
countries to implement without distorting trade. This paper was distributed
after the main discussion, and hence was not debated.

In its paper, the G20 recalled
para 16 of the July framework saying that the main objective of review
and clarification of Green Box criteria is to ensure that domestic support
measures notified conform to the fundamental requirement that they have
no, or at most minimal, trade distorting effects or effects on production
(annex 2, para 1).

A major flaw of the Agreement
on Agriculture, it said, derives from the fact that there are no effective
controls on the benchmarks of Annex 2, thus generating the incentive for
members to notify distorting support in this category not subject to reduction
commitments, a type of 'box shifting' which does not change the distorting
nature of the support. As a consequence of this, the result of the review
and clarification process should, as a general principle, ensure that
the value of domestic support commitments to be undertaken, will not be
undermined.

The G20 suggested that a review
and clarification of the provisions of the Green Box to ensure that direct
payments , for which exemption from reduction commitments is claimed,
conform to Annex 2, para 1, should include:

* eligibility conditions for
receiving these direct payments should be such that the wealth effects
of payments are minimised;

* support should continue to
be provided through publicly-funded government programmes, not involving
transfers from consumers and should not require production, i. e. land,
labour or any other input shall not be required to be put to agricultural
use;

* credible and time consistent
policies with no changes in the eligibility rules, base periods or eligible
products or farmers;

* depending on the impact of
the programmes, coupled programmes providing support to products receiving
direct payments; and